A Keynote Address by Hon. Wycliffe Ambetsa Oparanya, Kenya’s Minister of Planning, National Development and Vision 2030 to the International Parliamentary Conference on International Development, London, 17th November, 2008

Chairman, Commonwealth Parliamentary Association,
Fellow Parliamentarians,
Ladies and Gentlemen:
I would like to start by saying what a great honour it is for me and the Kenya Government, to have been asked to deliver this keynote address on “Partner-Country Experiences” in development assistance, using Kenya as an example. At the request of this conference’s organizers, I will give special emphasis to our experience since the signing of the Paris Declaration on Aid Effectiveness in 2005. But before going into that subject, I would like to say that we in Kenya were saddened by the death of Hon. Kwadwo Baah-Wiredu, the late Ghanaian Minister of Finance and Planning who passed away last September. Hon. Baah-Wiredu was expected to make this keynote address, while I had earlier been requested to address you on ‘Progress Towards Millennium Development Goals, the Kenyan Experience’, but I have accepted to address you on this subject at the request of the association and as an honour the late. Hon. Baah-Wiredu was one of the most respected finance and planning ministers in Africa.

Ladies and Gentlemen: Any serious discussion on international development policy today must begin with the current global financial crisis and the impact it is likely to have on aid budgets in the developed world and on poverty reduction in the developing countries. We live in a world of increasing economic interdependence regardless of whether we live in rich OECD countries or the least developed countries of the Third World. The ongoing global financial crisis, for example, may have begun from the real estate crash and faulty sub-prime mortgages in the United States of America. But we are all feeling the impact now, even though it is affecting all of us at different levels and in different ways. The developed countries in North America, the EU and East Asia were in the frontline of the direct financial impact. This was the case obviously, because their banks and financial systems had close interaction with the banking industry in the US and many of them held or dealt with the securitized mortgage instruments that led to the problem in the first place.

But in many cases, and Kenya is one example, the impact was not that direct, but we are feeling it all the same. Fear that the world was facing an imminent recession was enough for dealers in African stock markets to divest in securities whose profitability they felt unsure about given the expected global economic downslide. Some currency traders in international markets and in our own countries also took forward positions, disposing or acquiring this or that currency depending on how they perceived the future of developed country markets. All this has affected our trade and investment programmes because national currencies in East Africa for example, have started to depreciate making imports more expensive. Let us also not forget that the turbulence in financial markets came hot on the heels of an unprecedented rise in global oil and food prices. Oil prices have fallen but our countries will continue to pay more for imported food. And so, just when a few years ago aid was rising it seemed like the global economy was in an expansionary, low-inflation mode buoyed by the unprecedented growth in China and India, we are now talking about the return of global inflation and a recession. As I said earlier, this affects Africa (and Kenya) in a very profound economic sense, even though our countries are not central players in the global financial markets.

Ladies and Gentlemen: There has been some good news out of Africa in the last six years. Since 2002, African countries collectively have recorded average GDP growth rates in excess of 5percent. It is the longest period of sustained growth in Africa at that level in many decades. In Kenya we registered an impressive GDP growth rate, which rose from 0.5 per cent in 2002 to 7 per cent in 2007. Some of that growth can be attributed to the rise in oil and metal prices in the global market due to increasing global demand of these products, particularly in Asia. But a good deal of it is the result of sound macro-economic management, end of many civil wars, and competitiveness in the agricultural and service sectors. A rate of GDP growth of these magnitudes, exceeding the rate of population growth, means there has been an average growth in per capita incomes in the region in the order of 2-3percent. Poverty levels were falling, though not fast enough in most African countries. But we have witnessed reduction in poverty levels particularly in those countries that concentrated expenditures on human resources development; that is, providing sound education and better health services including reduction of the HIV-AIDS infection levels. In Kenya, poverty fell from 56 per cent in 2003 to 46 per cent in 2006. In addition, the countries that have done well out of this growth were those that provided income-generating opportunities targeting the poor.

However, as I stand here, I am afraid that given the global economic trends that I have just referred to, there is a real danger that even the limited gains many countries in Africa have made in poverty reduction could very well be reversed, even if only in part. The reasons behind that regrettable prediction are not difficult to understand. If the developed economies enter a recession, as many economists predict is likely to happen, the demand for Africa’s exports like coffee, tea, cotton, oil, flowers, cocoa, etc, will surely decline and so will African incomes. If the developed economies fall into a recession, there will be fewer tourists visiting countries like Kenya, and other popular tourist destinations in the continent. There is a good chance that aid budgets in the wealthy countries might be reduced.

All these will reduce the earnings of the very people the MDGs were intended to help—small-scale farmers in the export sector, curios vendors, drivers and hotel employees in the tourist sector, and workers in agricultural, industrial and service sectors. As home-owners in the developed economies lament the fall in home prices and more expensive credit, ordinary citizens in Africa will also be mourning falling incomes, more poverty and unemployment. Africa has the world’s highest ratio of poor to total population, and it has also been the slowest among the developing regions in eliminating mass poverty. This is a sad prospect and we in this association should do all we can to make sure it does not happen.

This brings me to the subject of reforms in development assistance, which I am expected to address in the context of Kenya. The grim picture which I have just painted now looks like the opposite of what the G8 countries had in mind during their August 2005 summit at Gleneagles in Scotland. At that remarkable conference as we all recall, the G8 countries promised to double the aid to the developing counties to $50 billion by 2010. Half of that amount ($25 b) was to be dedicated to Africa. A record amount to fight HIV-AIDS world-wide was approved and a debt write-off worth $40 billion for 18 of the most heavily indebted poor countries was commissioned. Most of these poor countries are in Africa. This was not unconditional money. It was conditional because African countries pledged themselves to improve national governance, fight corruption, and adhere to prudent macro-economic policies and overall public spending in favour of the poor.

The Kenyan Experience with aid
Ladies and Gentlemen: What has been our experience with aid before and after the Paris Declaration? When we achieved our independence in 1963, Kenya was dependent on aid to finance practically all its development budget. Indeed even some of the recurrent expenses (like salaries of British experts in the government) were paid from donor funds. But the situation changed quite rapidly during the first decade of our independence. As the economy grew, so did tax revenue. B y 1974, Aid was supporting about 12.5% of the total budget, while local revenue paid for the balance. Most donor funds went to capital projects like roads, power and public utilities.

But after the Kenya government adopted structural adjustment policies in 1984, the amount of the external donor support to our annual budget rose in real and absolute terms to about 22 percent of total expenditure 1996/97 fiscal year (see figure 1).

Figure 1: ODA as a % of Total Government Expenditure

But after disagreements over governance reforms with the then Kenyan government, donors reduced programme Aid to Kenya to the extent that it only contributed only 11% in 2000/2001 financial year.
Kenya put a lot of development project on hold as a result of the cuts in ODA.

The situation changed after the NARC government was elected to office in 2003. Aid level increased in absolute terms. However, because collection of local tax revenues increased even faster (doubling between 2003/04 and 2008/09 (see figure 2) the proportion of the budget supported by ODA fell to between 13% and 12% between 2002/03 and 2008/09 financial years (see figure 1).
Figure 2: External and Government Resources components of the budget

Most of the aid in this phase of our history went into Health, Education and water in comparison to the 1960s, to enable Kenya to meet the MDGs.

The Paris Declaration Experience
Let me now come to our experience under the Paris Declaration. The framework for more efficient and accountable aid delivery had been already agreed in the March 2005 Paris Conference on Aid Effectiveness. The Paris high-level consultation forum that year came up with the Principles of Aid Harmonization and Coordination. The document was arrived at after consultations hosted by the OECD involving donor and recipient countries, and representatives of civil society.

Although our economy as I have demonstrated is not highly dependent on aid, we in Kenya wish (under vision 2030) to increase resource inflows in Overseas Development Assistance (ODA), Direct Foreign Investment and remittances from Kenyans working abroad. And so we were eager to work with our development partners on the new aid framework. For the first time in aid history, donor countries agreed to (i) harmonize their country policies with those generated by the developing countries themselves, and (ii) to harmonize their policies with each other. Furthermore, the Paris Harmonization and Coordination Principles committed donor and recipient countries to mutual accountability and transparency. Lastly, the Paris Declaration committed donor countries to fund and monitor projects jointly, in what are now called Sector-Wide Approaches (or SWAPs) in order to minimize bureaucratic delays. For African ministers in a position similar to mine, one of the most attractive aspects of the Paris Harmonization and Coordination Principles was joint missions of donor experts in project monitoring and evaluation, which were expected to cut in the time we as ministers normally allocate to visiting donor missions. In summary, the G8 Gleneagles pledge was made at a time when the global architecture of aid delivery had been constructed anew by the Paris conference.

In addition, for us in Kenya, this pledge was made after the British Prime Minister Tony Blair Commission on Africa had issued its report in March 2005. That report pointed out in very candid terms where the problems of African countries lay—poor governance, political instability, low institutional capabilities, and inadequate participation in world markets. It also suggested ways in which development assistance could be used to help alleviate these problems. There was reason all round to be hopeful, more so because Britain (and Prime Minister Tony Blair) was taking the G8 chairmanship.

Kenya notes with disappointment that the goals have not been met. Overall global aid levels have not matched the projections agreed at in Gleneagles. Overall aid levels in real terms rose in 2005 but fell by 5.6percent in 2006 and have continued to decline especially if we deduct the amount attributed to debt forgiveness and funds that went to reconstruction in Iraq and Afghanistan.

The frustrations expressed by African governments last September also apply to us in Kenya. The Accra September 2008 High Level Forum on Aid Effectiveness will be remembered for the candid manner in which African countries expressed dissatisfaction with ODA programmes which still reflect the problems that the Paris Declaration sought to deal with. African countries expressed dissatisfaction with the poor coordination among donor countries, and insufficient consultation with African governments on aid policies and programmes. For their part, donor countries working in Africa urged African governments to take more ownership of development policies. Not too much it seems had been achieved. The Accra Forum Agenda for Action made specific commitments to change all that. So there is still hope.

To put an end to the long standoff between Kenya and its development partners over governance issues and corruption in particular in the 1990s, the Kenya Government implemented a number of legal and institutional reforms in the area of governance reforms. These included an Anti-Corruption Act, Public Officers Ethic Act, a Public Audit Act, and a well-staffed Kenya Anti-Corruption Commission. Improved relations with our development partners followed, particularly after the 2003 donor consultative forum in Nairobi, the first of its kind in many years.

Ladies and Gentlemen:
Kenya’s experience with international development assistance since 2003 could be summed up as follows: (i) ODA commitments have risen, though more slowly than domestic revenue (see figures); (ii) Kenya’s capacity to utilize aid available, though rising, has been inadequate but reforms to improve it are showing results; (iii) bureaucratic delays on our side and that of the donors are still a major impediment to efficient project implementation; (iv) despite the Paris Declaration aid to Kenya is still unpredictable, which has forced the country to budget only for projects whose ODA is under disbursement.

As I mentioned earlier, we in Kenya have a problem of low absorptive capacity. Although our capacity to use development finance is good by regional standards we must do better. This is an issue we are dealing with in collaboration with our international development partners. In 2003/04 financial year, the amount of capital development funds which was spent out of the total budget amounted to 57percent, meaning that only slightly over half of the money available was utilized in actual projects. Since then, our rate of project implementation has risen to the point where 70percent of the development budget is now being used in the year allocated.

What were the problems? These were found on both sides. Kenya had a very cumbersome and inefficient procurement system. Competitive bidding for projects often took too long and was often subject to litigation leading to delays. We have now addressed most of the problems we faced by a new Procurement and Public Assets Disposal Act, and set up a new independent procurement agency and tribunal. The process is also more transparent now. This has helped to speed up the process as reflected in the improved rate of implementation that I have just referred to.

But we experienced problems from the donors as well. I need not mention the problem of duplication of functions, where several donors were working in the same area but with little coordination. But even more importantly, most donors expected Kenya Government to spend its own money on capital projects and then claim reimbursement from the donors on the basis of certified completion certificates (from engineers or architects), vouchers and receipts. The problem here is that each donor demanded a system of accounting peculiar to its national requirements or laws. It was not always easy to comply. Since most big projects are completed in sections, Kenya found itself experiencing delays because donor accounting conditions were not met in time, or because additional information was asked for. We have made some progress toward that with one group of donors, but we are still a long way from meeting the Paris recommendations.

Altogether therefore we have covered considerable ground in implementing the main protocols of the Paris Declaration. But we still have a long way to go. We still have not managed to organize joint missions on a sustained basis. We must try harder on all sides.
Ladies and Gentlemen: One important innovation towards improving efficiency in the management of ODA to Kenya is the monthly Nairobi -based donors consultative forum. This forum has proved to be an invaluable avenue for candid discussions on government policy matters and the role that donors should play in accelerating growth and poverty reduction.

I am sure you all read about the unfortunate events that led to post-election violence in Kenya last January and February. I would like to conclude on this topic because in many ways Kenya benefited greatly from international support from our development partners, the African Union, the UN, and the Commonwealth Secretariat. On their own, our political leaders decided that the way to end the traumatic events were through a power-sharing arrangement and a Grand Coalition Cabinet. Through the good offices of Dr. Kofi Annan an agreement was reached in February and the cabinet sworn in last April. Kenya is back to normal, our economy has assumed the path towards growth that my Ministry had projected at 4.5 percent in 2008, before the onset of the global financial crisis. Our international development partners in Nairobi played some role in funding humanitarian assistance, reconstruction and many on-going projects that respond to real causes of the violence namely youth unemployment and poverty. I mentioned at the beginning that we face common problems on the world today and the effects in one country in the world end up affecting all of us.

Threats to Kenya’s Sustained Growth

Ladies and Gentlemen: While I acknowledge that aid effectiveness is key to sustained economic growth in many of the developing countries, I must add that there are other challenges that may impede faster growth in those countries. In the case of Kenya, we face a number of challenges to this effect, which I would like to share with you. These challenges include:

These are common developing countries threats to development and unless these issues are adequately addressed, they will continue to undermine all other efforts of ensuring sustained growth in developing countries Kenya included.

Way Forward
What then is the way forward as we in Kenya contemplate economic development and poverty reduction at a time of great uncertainty in global financial markets, and the world economy generally? First, there is need for more ODA since we expect a decline in remittances, and possibly also in foreign direct investment as a result of the slowdown in the OECD countries. We believe that under the Gleneagles spirit, developed countries should not cut their aid budgets any further. It is enough that the 2005 pledges have not been met. Secondly, Kenya and her development partners must accelerate the pace under which the new aid architecture is being implemented. Both sides must move rapidly with ensuring quicker and more efficient utilisation of the available funds. Thirdly, given my fears that global economic uncertainty and inflation may submerge a large number of people into poverty, who were about to escape it, we must do all we can for the poorest section of our population. This could take the form of an expanded public works programme, or better access to market for goods produced by the poor. Fourthly, Kenya is a young nation. Youth make up over 60 percent of our national population. Part of the problems we experienced after the elections sprang from youth unemployment and hopelessness. Together with our development partners we must, as a matter of urgency find ways to deal with this problem because disillusioned youths could be recruited into illegal or violent activities, neither of which will be helpful to Kenya.

Achieving all this, the International Parliamentary Conference has an important role to play. It must ensure that international development policy does as much good as the tax-payers in the donor countries want it to do. Kenya believes in democracy. In all democracies, public expenditure is approved and scrutinized by national legislators. This includes funds committed to international development. Members of parliaments represented in this conference carry a heavy responsibility to their own tax-payers and to the needy in developing countries like mine. It is perhaps one of the heaviest responsibilities in the world today. Let us see what we could do to help as we discuss these problems between ourselves in the next few days.

I wish this conference the greatest of success in dealing with this vital subject. And I thank you for listening to me.

THANK YOU.